Lantheus Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. Lantheus develops, manufactures and sells diagnostic imaging, radiotherapeutic and related products. Its principal revenue categories are Radiopharmaceutical Oncology, Precision Diagnostics, and Strategic Partnerships and Other Revenue.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $300.8 million | $208.9 million |
| Gross profit / gross margin | $77.1 million / 25.6% | $129.1 million / 61.8% |
| Operating income (loss) | $(9.3) million | $58.9 million |
| Net income (loss) | $(2.8) million | $43.0 million |
| Diluted earnings (loss) per share | $(0.04) | $0.61 |
| Net cash provided by operating activities | $108.5 million | $10.3 million |
- Revenue drivers: PYLARIFY revenue was $195.5 million, up from $92.8 million; DEFINITY revenue was $68.8 million, up 18%. Precision Diagnostics revenue rose 10.9% to $95.6 million. Strategic Partnerships and Other Revenue declined 68.6% to $9.0 million, principally reflecting the absence of the prior-year $24.0 million Novartis license revenue.
- Profitability: Gross profit fell 40.3% despite higher revenue. The primary unusual item was a $132.1 million noncash AZEDRA-related impairment: $116.4 million recorded in cost of goods sold and $15.6 million in R&D. The company stopped development of an AZEDRA indication and found no alternative future use for the impaired asset. The filing does not provide a comparable adjusted or impairment-excluded profit measure.
- Cash flow: Operating cash flow increased to $108.5 million. It included substantial noncash impairment and other adjustments; working capital sources included timing of income tax and vendor payments, while higher receivables were a use of cash. Investing outflow was $44.5 million, including $35.3 million for Cerveau and $9.2 million of capital expenditures. Financing outflow was $8.7 million.
- Liquidity and debt: Cash and cash equivalents were $470.9 million at March 31, 2023, versus $415.7 million at year-end; current assets were $773.3 million and current liabilities $276.4 million. Debt and other borrowings totaled $559.0 million, including $575.0 million principal of 2.625% convertible notes due 2027, net of issuance costs and including finance leases. There were no borrowings under the $350 million revolving facility. Cash less the notes’ principal was approximately $104 million, before other obligations.
Material changes and developments
- Total revenue increased 44.0%, mainly due to PYLARIFY and DEFINITY growth. Product revenue rose to $292.3 million from $180.0 million.
- Cost of goods sold rose 180.3%, principally because of the AZEDRA impairment and the prior-year period’s Novartis license settlement; operating expenses increased 23.2% overall. Higher sales and marketing and R&D costs were partly offset by lower G&A, including the absence of prior-year contingent-value adjustments and an insurance settlement.
- Interest expense increased to $5.0 million from $1.5 million, primarily reflecting the December 2022 issuance of convertible notes.
- On February 6, 2023, Lantheus acquired Cerveau, whose principal asset is MK-6240, a PET imaging agent targeting Tau tangles in Alzheimer’s disease. The company paid $35.3 million upfront and may owe a further $10 million for technology transfer, up to $51 million in regulatory milestones, commercial and research milestones, and royalties.
- A purchase agreement was signed to sell part of the Billerica campus for $10 million cash; closing was expected in the second half of 2023.
Outlook, risks and contingencies
- Outlook: The filing provides no numerical revenue or earnings guidance. Management stated that cash, expected operating cash generation and continued access to the revolving facility should cover requirements over the next twelve months and beyond.
- PYLARIFY CVRs: Based on 2022 PYLARIFY sales, the company recorded a $99.7 million current liability, the maximum CVR payment, and expected to pay it in Q2 2023 in full satisfaction of the obligation.
- Pipeline commitments: POINT’s PNT2002 and PNT2003 licenses involve possible regulatory and sales milestones, royalties and continuing development and commercialization costs. Potential sales milestones are substantial; their payment depends on future approvals and sales.
- Supply and competition: The company cites competition for PYLARIFY, reliance on third-party manufacturing, and Mo-99 supply and logistics risks. Supply disruption could constrain production and sales. SHINE’s anticipated Mo-99 facility was then estimated to become operational in 2024, subject to approvals and execution.
- Other risks: Future performance depends on commercial growth, pricing and product mix, regulatory and clinical outcomes, manufacturing capacity, inflation and access to financing. The revolving credit facility has leverage and interest-coverage covenants; Lantheus reported compliance at March 31, 2023. The company reported no material ongoing litigation and no material changes to its prior annual-report risk factors.
- Other obligations: Contingent liabilities include approximately $85 million of potential payments related to a 2013 acquisition, dependent on milestones and sales. A $30.3 million surety bond provides financial assurance for eventual facility decommissioning; the company said it had no current plans to close those facilities.
Investor verification priorities
- Confirm the timing and final settlement of the $99.7 million PYLARIFY CVR payment and its effect on cash.
- Track PYLARIFY and DEFINITY sales growth, competition, and the effect of the 2024 potential expiration of PYLARIFY’s Medicare transitional pass-through status.
- Assess reported gross-margin performance apart from the AZEDRA impairment and other period-specific items; verify whether further impairments or development changes arise.
- Monitor Cerveau/MK-6240 and POINT program progress, regulatory milestones, contingent payments and royalty obligations.
- Review Mo-99 availability and third-party manufacturing continuity, as well as compliance with credit-facility covenants and liquidity after acquisition and CVR payments.